Accountability in accounting

From the good ole days. When it was the surplus that was being misunderestimated.

Stephen Harper, Oct. 6, 2004. “We also know that the government has been wildly inaccurate in its forecasts and spending projections over the past five or six years. In recent budgets the Liberals have lowballed surplus numbers by an average of $6.5 billion per year. In the U.S. they do not have this kind of debate. There is a congressional budget office. People there, like here, may disagree on fiscal policy, but they should not have to guess if the numbers they are using are accurate.”

Monte Solberg, Oct. 13, 2004. “It just makes the point that if government … is going to be taken seriously about numbers, it must provide estimates that are going to be at least close to where we actually end up.”

Stephen Harper, Oct. 13, 2004. “These guys were lying about the surplus, and this proves why we need independent fiscal forecasts.”

Rob Nicholson, Oct. 15, 2004. “The Liberal government makes a mistake every year by trying to guess the revenues of the country. It has mis-guessed the surplus every year. Mistakes are made, but the government might want to get some new people to advise it. That might be a good move. Why do we not bring in a bill suggesting that whoever has been advising the government for the last seven years as to what its revenues are should be fired. I bet we would get a consensus on that one. Is there anybody in the House who would disagree with bringing in a bill to get new people to advise the Liberals? We would all be better off and Canada as a whole would be better off.”




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Accountability in accounting

  1. Great blog post, Aaron. The 2004 quotes by Harper, Solberg and Nicholson are all good finds.

  2. FTW

  3. You could go back much further and see the same ol same ol -

  4. Dang.. didn't the conservatives promise us a new way of doing politics though?

  5. We have tapes!

  6. As an aside, we should avoid using a neologism popularized by GWB. The degree to which "misunderestimated" isn't a real word is often underestimated or misunderstood.

  7. Yes, go back and you'll see more Reform/Alliance complaining about Liberal surpluses, and more Liberals complaining of Progressive Conservative deficits. It's a very interesting pattern.

    I hope, very soon, to see the pattern continue, with Conservatives again complaining of Liberal surpluses.

    But in all seriousness, after years of Mulroney-era ministers consistently overestimating government revenues and under-estimating the deficit, when the Liberals took government in 93 they decided to try something different: let's be very conservative in our estimates of government revenues, and leave ourself a cushion in case things go sour. That led to the deficit being tackled sooner than expected, it let to consistent higher than expected surpluses, and it left the government the wiggle-room to handle the sudden post-911 security costs without going into deficit.

    The philosophy being, I suppose, that when budgeting its better to end up with a few extra dollars than to be a few dollars short. Kind of makes sense. The Reform/Alliance et al never agreed.

    Now, Flaherty seems to have gone back to the Mulroney/Wilson style of budgeting: overestimate revenues, underestimate the deficit. Because it worked so well for Brian.

  8. hee hee.

  9. in the not too distant future: surplus…surplus…what is a *surplus again?

  10. you can keep going back further than this way back – Trudeau – Dief – Pearson – etc etc etc same same o

  11. Except the Chretien/Martin Liberals did our bit to break the pattern: we returned surpluses, and we budgeted conservatively. Why are the Conservatives taking us back into bad habits?

  12. I don't know…when we've seen reversals and hypocrisy on things that the CPC said mere weeks or months ago, it just seems silly to identify 5 year old hypocrisy anymore.

  13. Since I've already gone all EXTREME CONBOT at my place, might as well sleep in my bed: is there any difference between making accurate economic projections of a surplus during relatively stable economic periods, where growth is at or near what it was expected to be at budget time, and in making accurate economic projections in the midst of a rather unprecendented economic fiasco the ups and (more frequently) downs of which haven't been accurately predicted by pretty much anyone? I would say there is.

    Although I'll happily grant that the schaedenfreude is understandable and to a certain degree warranted.

  14. to be brief you mean it is undermistood.

  15. their budgets were not accurate

  16. Great blog post, Aaron. The 2004 quotes by Harper, Solberg and Nicholson are all good finds.

    • As an aside, we should avoid using a neologism popularized by GWB. The degree to which “misunderestimated” isn’t a real word is often underestimated or misunderstood.

      • to be brief you mean it is undermistood.

    • I don’t know…when we’ve seen reversals and hypocrisy on things that the CPC said mere weeks or months ago, it just seems silly to identify 5 year old hypocrisy anymore.

  17. FTW

  18. You could go back much further and see the same ol same ol -

    • Dang.. didn’t the conservatives promise us a new way of doing politics though?

    • Yes, go back and you’ll see more Reform/Alliance complaining about Liberal surpluses, and more Liberals complaining of Progressive Conservative deficits. It’s a very interesting pattern.

      I hope, very soon, to see the pattern continue, with Conservatives again complaining of Liberal surpluses.

      But in all seriousness, after years of Mulroney-era ministers consistently overestimating government revenues and under-estimating the deficit, when the Liberals took government in 93 they decided to try something different: let’s be very conservative in our estimates of government revenues, and leave ourself a cushion in case things go sour. That led to the deficit being tackled sooner than expected, it let to consistent higher than expected surpluses, and it left the government the wiggle-room to handle the sudden post-911 security costs without going into deficit.

      The philosophy being, I suppose, that when budgeting its better to end up with a few extra dollars than to be a few dollars short. Kind of makes sense. The Reform/Alliance et al never agreed.

      Now, Flaherty seems to have gone back to the Mulroney/Wilson style of budgeting: overestimate revenues, underestimate the deficit. Because it worked so well for Brian.

      • you can keep going back further than this way back – Trudeau – Dief – Pearson – etc etc etc same same o

        • Except the Chretien/Martin Liberals did our bit to break the pattern: we returned surpluses, and we budgeted conservatively. Why are the Conservatives taking us back into bad habits?

          • their budgets were not accurate

          • Oh come on, give me a break. Their budgets were prudent. That’s a difference. If you’re going to err, would you rather err on the side of having a few dollars left, or being short?

          • Relatively speaking, they were extremely accurate. I don’t recall them being off by $50 billion in the course of six months.

            If you have a list of federal budgets post 1950 which were more accurate, please give us a few examples…

  19. We have tapes!

    • hee hee.

  20. in the not too distant future: surplus…surplus…what is a *surplus again?

  21. Ssssh! You're being too reasonable.

  22. Since I’ve already gone all EXTREME CONBOT at my place, might as well sleep in my bed: is there any difference between making accurate economic projections of a surplus during relatively stable economic periods, where growth is at or near what it was expected to be at budget time, and in making accurate economic projections in the midst of a rather unprecendented economic fiasco the ups and (more frequently) downs of which haven’t been accurately predicted by pretty much anyone? I would say there is.

    Although I’ll happily grant that the schaedenfreude is understandable and to a certain degree warranted.

    • Ssssh! You’re being too reasonable.

    • Well, successful companies are notably conservative in their revenue guidance. To be sure, the ‘suprises’ seem to become less surprising over time, but it is a far more favourable strategy in terms of risk management and usually attracts investor interest. An investor will accept an underestimated profit far more than an overestimated one let alone an underestimated loss. I think that is the key point here. When I invest in companies, I get very uneasy when their long term forecasts become very optimistic, since accuracy in forecasts tend to decline as you lengthen the time scale (hence why you take the conservative approach). As much as I question the “Government should always be run like businesses” perspective, there is one thing that this crisis has shown: Financial institutions who were being uncharacteristically (and I would argue, in some cases, unethically) optimistic right up until the flash point of the financial meltdown did far more harm than good and wiped out a lot of capital for investors. In some institutions, there was a clear reluctance on disclosing the imminent risks of the over inflated credit market and their participation therein. A government cannot afford to follow that analagous type of management, since the consequences of their underestimating costs and revenue shortfalls until the very onset of a recession will have a more devastating effect.

      What the Canadian banks certainly did last fall (and rightly so) was to take a “kitchen sink” approach to their earnings announcement. After finally swallowing the bitter pill and letting the shorts have their day in overshooting the value of the companies to the downside, balance sheets were finally reevaluated a little bit more realistically with investor confidence slowly returning. I think the Harper government is realizing that there needs to be this kind of “kitchen sink” approach right now with their budget. The problem is that it is much too late in the timing due to their prior steadfast bullishness, which makes for greater inaccuracies.

      There were people sounding the alarm, so I find it odd that leaders didn’t pick up on some of these predictions, which turned out to be fairly accurate (Meredith Whitney or Nouriel Roubini being some of them). I remember last August how odd it was that these two were featured enough in the business media with their bearish theses, yet Flaherty was speaking at the CNE in Toronto at the very end of the month about how Canada, with corporate tax cuts, were in a sound position. The question that came to my mind was that if government corporate tax revenues were so solid, how come in the previous year, the reasoning for taxing income trusts was to prevent suddenly potentially significant loss in said revenues? In this case, Flaherty exited relatively unscathed because he was generally (I say “generally” generously) trusted that he did the appropriate analysis taking into account a rather more ominous scenario for the government’s income statement (ie lower government revenues with unchanged or possibly higher costs). It is indeed easier to do that in more stable times, but I would think that given the impending financial turmoil, it would have been more forgivable if he conducted that same type of approach again. He didn’t, but this inconsistency is even more damaging as it results in a loss of confidence in the government’s fiscal policy. That is really the crux of the issue. Unless Flaherty can restore that confidence hopefully in a more expedient manner than his counterparts in the financial industry, this is going to be an uncertain and thus tough economic climate for the next year.

  23. Well, successful companies are notably conservative in their revenue guidance. To be sure, the 'suprises' seem to become less surprising over time, but it is a far more favourable strategy in terms of risk management and usually attracts investor interest. An investor will accept an underestimated profit far more than an overestimated one let alone an underestimated loss. I think that is the key point here. When I invest in companies, I get very uneasy when their long term forecasts become very optimistic, since accuracy in forecasts tend to decline as you lengthen the time scale (hence why you take the conservative approach). As much as I question the "Government should always be run like businesses" perspective, there is one thing that this crisis has shown: Financial institutions who were being uncharacteristically (and I would argue, in some cases, unethically) optimistic right up until the flash point of the financial meltdown did far more harm than good and wiped out a lot of capital for investors. In some institutions, there was a clear reluctance on disclosing the imminent risks of the over inflated credit market and their participation therein. A government cannot afford to follow that analagous type of management, since the consequences of their underestimating costs and revenue shortfalls until the very onset of a recession will have a more devastating effect.

    What the Canadian banks certainly did last fall (and rightly so) was to take a "kitchen sink" approach to their earnings announcement. After finally swallowing the bitter pill and letting the shorts have their day in overshooting the value of the companies to the downside, balance sheets were finally reevaluated a little bit more realistically with investor confidence slowly returning. I think the Harper government is realizing that there needs to be this kind of "kitchen sink" approach right now with their budget. The problem is that it is much too late in the timing due to their prior steadfast bullishness, which makes for greater inaccuracies.

    There were people sounding the alarm, so I find it odd that leaders didn't pick up on some of these predictions, which turned out to be fairly accurate (Meredith Whitney or Nouriel Roubini being some of them). I remember last August how odd it was that these two were featured enough in the business media with their bearish theses, yet Flaherty was speaking at the CNE in Toronto at the very end of the month about how Canada, with corporate tax cuts, were in a sound position. The question that came to my mind was that if government corporate tax revenues were so solid, how come in the previous year, the reasoning for taxing income trusts was to prevent suddenly potentially significant loss in said revenues? In this case, Flaherty exited relatively unscathed because he was generally (I say "generally" generously) trusted that he did the appropriate analysis taking into account a rather more ominous scenario for the government's income statement (ie lower government revenues with unchanged or possibly higher costs). It is indeed easier to do that in more stable times, but I would think that given the impending financial turmoil, it would have been more forgivable if he conducted that same type of approach again. He didn't, but this inconsistency is even more damaging as it results in a loss of confidence in the government's fiscal policy. That is really the crux of the issue. Unless Flaherty can restore that confidence hopefully in a more expedient manner than his counterparts in the financial industry, this is going to be an uncertain and thus tough economic climate for the next year.

  24. Oh come on, give me a break. Their budgets were prudent. That's a difference. If you're going to err, would you rather err on the side of having a few dollars left, or being short?

  25. Relatively speaking, they were extremely accurate. I don't recall them being off by $50 billion in the course of six months.

    If you have a list of federal budgets post 1950 which were more accurate, please give us a few examples…

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